With 127 million inhabitants, a strong economy – a GPD (PPP) ranking in the world 4th position -, and a low unemployment rate – 2.5 %- Japan appears as the perfect country to do business with or expand in. Doing business in Japan is somehow not a simple process and should be addressed in a very rigorous way. According to the latest World Bank “ease of doing business” report, Japan ranks at the 39th position. Interestingly, this ranking has been degrading steadily over the last ten years.

Ease of doing business in Japan

Business Development in Japan is a complex process. The worse strategy to implement when entering the Japanese market is the “Copy-Paste” one. The list is long of global players who failed and ultimately had to leave. Analyzing the reasons for these failures is an eye-opening exercise and should help in defining the key elements to consider when preparing to enter a country which represents nearly 10% of the world economy.

Target quality and localize!

Adding new menus and partnering with First Kitchen has proven to be a successful strategy for wendy’s

In 2009, Wendy’s shut down all of his 71 locations in Japan. Six years later, Wendy’s came back after buying the local company First Kitchen and decided to add pasta dishes to the traditional burger menus. In Japan, customization and exclusivity are paramount. Wendy’s offered exclusive burgers such as the Foie Gras burger and a plethora of limited time burgers and French toasts for breakfast. McDonald’s pursued precisely the same strategy and offered more than 50 on in Japan exclusive items such as the Teriyaki burger, the soy sauce, and ginger chicken Tatsuta without forgetting the limited edition Chocolate Potato chips.

Despite partnering with Mitsubishi, British Health & Beauty giant Boots had a quick and costly experience in Japan. Lack of customization of the shops and products to the Japanese tastes as well as high costs of operation generated losses and ultimately the end of the experience.

By not investing enough in the infrastructure and not offering products suited to Japanese consumers, Vodafone test in Japan was also a massive failure. Japanese customers are very technology orientated. Japanese companies always offer high-end technology products. Vodafone just did a copy-paste. They proposed the handsets devices which were successful in other countries. These devices did not appear to suit the technology requirements of Japanese customers. For Vodafone, the Japanese experience ended up in less than five years. The whole business was sold for £8.9 billion to the local Softbank.

Do your homework!

More than 50 years ago, Carrefour invented the concept of Hypermarket. Despite operating more than 12,300 shops all over the world, Carrefour initial steps in Japan were a failure. Mostly due to a lack of in-depth analysis of the Japanese market and especially of the willingness of the Japanese customers to change their shopping habits. The shops and aisles were too big and intimidating for the Japanese customers. The management staff was mainly composed of foreign executives, not speaking Japanese. This brought communication problems in a country where only three-five p100 of the population speaks English. The products and sections were not customized enough to fit the Japanese tastes. In Japan, buying small quantities of fresh food more often is preferred to the western big-volume weekend shopping. Some mislabeling mistakes and difficulties in finding appropriate locations contributed to the rapid failure of Carrefour in Japan. Another problem faced by Carrefour might also have been linked to the traditional perception by Japanese of what a French brand is. In Japan, French products are mainly associated with high-end goods. Carrefour strategy of selling low priced products was counter-intuitive. It did not align with market expectations.

Changing the consumer’s habits and viewpoints is a long process. In Japan, Products and services are very tailored. Analyzing the market, consumption habits thoroughly and adapting to the consumers is critical.

Choose the right time

eBay failure in Japan is also a perfect case study of the importance of timing when entering Japan. Yahoo! Auction opened in Japan before eBay and offered its services for free to grow its customer base quickly. eBay did not localize its services enough and used the same business model as the one which had proven successful in the US: payment with a card and charge of a fee for selling the items. When Yahoo! Auction was offering the same service for free, eBay model did not reach traction. They also hired a CEO with a poor understanding of the Japanese internet and did not market enough its services while relying heavily on word of mouth. All of these factors combined contributed to the failure of eBay.

Japanese customers are loyal and research heavily before purchasing an item. Once a dominant position is established, it needs a technological or service breakthrough to rock the boat. Mercari launched its peer-to-peer sale services, in 2013, long after Yahoo! Auctions but they disrupted the model to align it with their target users. They focused on offering an experience using a smartphone instead of a computer. In a country where smartphones are more and more replacing computers, especially with teenagers and young adults, this was a real smart move. Mercari’s disruptive business model was such a success that the company became the first Japanese technology Unicorn with a $1.2 billion IPO in June 2018.

Be patient!

It takes time to conclude a deal in Japan. The decision process in Japanese corporations is often a collective one. Each decision layer will have to agree to proceed with the next layer. Even more complicated for the westerners is the unwillingness for the Japanese not to deceive their counterparts and not to give a clear Yes or No answer. More than a business deal per se, it is often the character and reliability of the business partner who will be assessed during the initial business meetings. The ultimate goal is to build a long term business relationship relying heavily on mutual trust.

With the right partners, the necessary amount of time, investment and research, failing to enter the highly profitable Japan can be avoided. IKEA did not succeed immediately in Japan. Their first attempt was a failure. They studied more, adapted their offer and came back successfully a few years later.